China is well known for their boom in the internet market, for every Zappos or Groupon there is a Chinese replica. China has the world’s largest Internet market. Year 2003 Chinese companies went public and did very well. Overseas investors were very excited and wanted to be a part of the big boom that China was benefiting on. One would think that China would be untouchable in declining funds in the VC Market, wrong!
For China, venture capital investments fell to an all time low this year from the last 6 years, as reported by Dow Jones VentureSource, unprofitable companies going public too soon have scared away many oversea investors. Oversea VC firms aren’t throwing funds into Chinese start-ups as much as once before. “The reason the venture capital market dried up is because the exit market is not there,” said Tim Chang, managing director at Mayfield Fund. 2012 saw fast declines: a 39 percent decline in investment deals and a 56 percent decrease in VC investment compared to the first quarter of 2011.
Information technology and consumer internet services took the biggest hit. Mind you, China has the world’s largest internet market. Knowing this information, it all makes very good sense for this market to drop. “Accounting fraud committed by some Chinese public companies and corporate governance issues have made foreign investors lose confidence in Chinese concerns,” said Chao. Investors hold management teams in China accountable for this loss, it is though that management didn’t set expectations and prioritize investor relations during the height of the IPO frenzy.
Efraim Landa, of Effi Enterprises, watches these trends and gives expert advice on investments globally. With the fall of the internet boom, one should seek expert advice in where to go for private equity funding. Experts, Chang and Chao, remain optimistic about the long-term investment prospects. China will boom as it did before, and the economy will bounce back once investors see an A-1 company go public in China. Chang points to several start-ups that are poised for success: Vancl, the Chinese equivalent of Banana Republic, received great notice recently. Another e-commerce company, 360buy, raised $1.5 billion in 2011, and is growing strong. There are VC firms that are still practicing investments and who are strong in this arena
Top China VC Firms
- Accel Partners – invested in companies like Soko, 360.cn, Memsic, LED, SouFun, Moncler, and OriGene Technologies
- Carlyle Group – invested in companies like Awaken Limited, China Fishery Group Limited, China Real Estate Market, China Recycling Energy group, and Pacific China Holdings
- DE Shaw Group – invested in companies like Juno Online Services, KB Toys, and eToys.com
- Draper Fisher Jurvetson – invested in companies like Baidu, Hotmail, Skype and Glam Media. General Atlantic – invested in companies like Sunart Retail Group, Soufun, Alibaba Group, and RenRen
There are plenty more VC firms that are doing very well in China. E-commerce is where it is at, China knows this all too well.